Fear & Greed (II)

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charting, diversification, Expected Value, falling knives, fear and greed, intrinsic value, investment checklists, momentum, portfolio allocation, position limits, stop losses, sunk costs, technical analysis, trading, value investing, value-trap

Continued from here.

I labelled as tricks some of the techniques I’m writing about here – which might have put off some readers. But surely you’ll try anything that might help combat the impact of fear & greed in your investing? Reconsidering, I’d now argue the five techniques I’ve already documented are actually essential tool-kit for any serious investor. Have another look, and I hope you’ll agree – to put it another way, it would be hard to argue your investing would actually improve if you omitted any of the following:

Learn To Love The Black Box:  Document all your investments, and analyze & learn from your mistakes.

Checklist It:  Develop checklist(s) for every stage of your investment process.

Valuation Orgy:  Value your investments using as many different valuation techniques & metrics as possible.

Watch What They Do, Not What They Say:  Focus on facts, figures & performance, not just the ‘story’.

Well, Are You The Right Size?:  Set pre-defined position limits within your portfolio.

However, a majority of my remaining techniques do perhaps deserve to be called tricks. Which means they may, or may not, suit your investing style & personality. Trouble is, how will you ever know if they’d work for you, unless you give ’em a whirl..?! Or figure out how they’re best adapted to your particular circumstances? Right, let’s soldier on:

vi) Learn Some Bloody Voodoo

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Fear & Greed (I)

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biofeedback, black box, fear and greed, home bias investing, investment checklists, literature, Nudge, portfolio allocation, The Checklist Manifesto, trading, value investing, value-trap

Great traders don’t necessarily have to be that smart, but mastery of their emotions – specifically, fear & greed – is absolutely essential. The same is equally true of great investors, except it just happens in slow(er) motion… But most people end up choosing investing over trading. Which is pretty fortunate – the trading gods delight in seeing meticulous logic & analysis abruptly savaged by fear & greed.

Many would-be traders never recognize this, and fail accordingly. Others grasp it, but remain trapped in a never-ending struggle. Only the brave few ever learn to fully master these emotions. Investing, on the other hand, seduces you with the luxury of time & positive long-term equity market trends. Which often makes it far more difficult to recognize the corrosive impact of fear & greed on your portfolio returns. The fact many of us shy away from any kind of critical self-examination doesn’t help either. But there are two solutions available to us:

The first is reading. In my last post, I argued for an important alternative to most investors’ non-fiction diet – literature, and lots of it. The great novels, plays & poetry are windows into the hearts & minds of other people – and in turn, yourself. Learning to actually recognize emotions like fear & greed in yourself, and their potentially disastrous impact on your investing, is the first & likely most difficult part of the battle you face.

Now, I didn’t cover the second solution – how to actually conquer those emotions. Because unfortunately, when it comes to that challenge, we are all truly alone… 

Why I Write…

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blog readers, bloggers, blogging, Godzilla, message boards, tea ladies, trading, value investing

Most bloggers eventually get ’round to answering the question ‘Why do you write?‘. If I recall, I’ve made plenty of related asides & comments myself (damn, I wish I had ’em to hand!) over the past year – but high time for a proper post, eh?!

As I mulled over this post, I came to a surprising realization – I guess the origin of the Wexboy blog actually stretches waayyy back. At one point, I wrote a daily market commentary for a number of years. Seemed like a good idea at the outset – oh, what sweet & naive foolishness! If you’ve tried it, you’ll know writing a daily 7 am commentary becomes a rather daunting (& boring) prospect pretty quickly! But it wasn’t something I could quit once I’d started, and whining about writer’s block wasn’t a feasible option either. So – my solution?

The old Mae West – I quickly drifted… My commentaries began to include anything & everything that took my fancy: Stocks, dumb celebrities, current affairs, political lampoons, hangover cures, primers on technical analysis, etc. Anything to distract & entertain myself as I tried to nail down a picture of the market each day/week. Over time, I’d indulge myself with various series & running gags. I’d often anthropomorphize the markets in terms of movies, celebrities, farming, whatever..! USD/JPY moves & intervention were huge then – I vividly recall writing Godzilla mini-plots to explain exactly (?!) what was going on in the markets.